A closed economy has the following production function:Y=5K\/SL4/5where Y is output, K is capital, and L is labor. Firms are price-takers and maximize profits. All markets clear.(a) Does the production function satisfy constant returns to scale?(b) Imagine that a hurricane destroys a significant amount of capital but affects neither labor nor technology.(i) Will the equilibrium real WAGE increase, decrease, or stay the same?(ii) Will the equilibrium real RENTAL RATE increase, decrease, or stay the same?(iii) Will total CAPITAL INCOME (the total income of the owners of capital) increase, decrease, or stay the same?

Given production function :- Y = 5K1/5L4/5

Answered: Y=5K/5L4/5, where Y is output, K is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that a firm's production function is Cobb-Douglas (Y = A K\alpha L1 - \alpha) with parameter a \alpha = 0.4. a) What fractions of income do capital and labor receive? b) Suppose that number of the labor increases by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? c) Suppose that a gift of capital from abroad raises the capital stock by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage? d) Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?
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Relationship between the Quantity of inputs used to make a good and the quantity of output of that good is called ………… a) Production function b) None of the mentioned c) Import d) Export
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Assume a Cobb-Douglas production function of the form: 3 What type of returns to scale does this production function exhibit? In this instance, returns to scale equal This production function exhibits q=10L0.28K0.59 (Enter a numeric response using a real number rounded to two decimal places.) OA. increasing returns to scale. OB. constant returns to scale. OC. initially decreasing but then constant returns to scale. O D. decreasing returns to scale. O E. initially constant but then decreasing returns to scale.
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